A small yellow and white square, with a side length of less than half a centimeter, may be thrown on the ground as waste paper if you are not careful. "This is our core technology." Yang Chang, born in 1998, carefully took the square from the workshop and put it on his fingertips to show it. This is an LED light source chip, also called a lamp bead, which is the core component that allows a lamp to emit light. With these small pieces of paper, his family built a business in Zhongshan and now has a five-story factory.
Yang Chang's father's outdoor lighting business started in Guzhen, Zhongshan City. Guzhen began to develop the lighting industry in the 1980s. Now it has a place in the country and even the world. It manufactures nearly 80% of the country's lighting products and is called the "World Lighting Capital". Together with the surrounding Xiaolan Town, Henglan Town, and nearby cities such as Jiangmen and Shunde, the "Pan Guzhen" area has formed a large lighting industry cluster.
Over the past 40 years, the local lighting industry has risen from zero to one with government support, LED technology dividends, and the upsurge of private entrepreneurship after reform and opening up. Three years after the pandemic, the industry has suffered a certain blow. As the world's circulation resumes, this traditional business that focuses on foreign trade and offline communication is recovering.
But a cruel reality is that the long-term problems faced by Zhongshan's lighting industry still exist: small enterprise scale, low-end price war, weak core technical competitiveness...
The fathers who laid the foundation for the business are retreating to the second line. The second generation of the factory who took over have studied abroad and understand the power of the Internet. They try to continue the family business in the way of young people.
The bonus of the lighting capital is no longer: "It's like a dream"
Leaving the center of Zhongshan with bustling shopping malls and trendy cafes, a 20-minute drive will take you to see the other side of the city: large areas of gray-white small factories, most of which have signs saying "XX Lighting".
The company run by brothers Yang Hong and Yang Chang is located in Henglan Town. The company's production involves everything from LED packaging, lamp bead patches, hardware stamping workshops to finished product assembly. The main products are stamped outdoor commercial lighting fixtures, such as street lamps. The main market for the products is the countries around the "Belt and Road". These regions are vigorously developing infrastructure and are more sensitive to prices, but they do not have high requirements for design and function, and they need cost-effective products.
Yang Hong was born in Macau and had a high-paying job in a casino when he was young. "At that time, I thought that even if I worked for another ten years, I could not afford a Ferrari." About ten years ago, he quit his job and returned to Zhongshan to take over his family's lighting factory.
But when he really became a boss, he still gave up the idea of buying a luxury car. Most of the money earned by the factory was used to buy automation equipment, which has already cost him tens of millions. Yang Hong laughed and said, "Porsche is parked in my workshop."
When Yang Hong returned home, it happened to be the era of popularization of LED lights. The old tungsten filament lamps and incandescent lamps began to be replaced by more energy-saving and efficient LED light sources. He recalled the grand occasion at that time, which was around 2015: "Switching to LED lights immediately reduced costs by 30%. The lamp sellers made money, and we also made profits." He described that at that time, there were customers everywhere, there were endless drinking parties, and a large number of people around him started businesses, and they called relatives and friends to form a company. In the golden period, a box of LED lamp beads cost 60,000 to 70,000 yuan. During the holidays, when no one was at home, the goods had to be stored in the safe at home.
But the good days did not last long. With the hot market came a price war. In order to maintain the competitiveness of the factory, Yang Hong had to use all the money to update the equipment. "The millions of dollars earned in a short period of time were all used to buy equipment."
LED lights are rapidly gaining popularity. The penetration rate of LED lighting products in China has grown from 32% in 2015 to 80% in 2021 in just six years. Product costs have dropped rapidly amid competition. Yang Hong gave an example, saying that the price of a box of lamp beads is now less than 1,000 yuan, "It's like a dream."
Price wars have always been a problem for local industries. Zhongshan's lighting industry mainly produces low-end and mid-range lighting fixtures, with a weak sense of patents and many "copycat factories" in the early days. The two brothers' company has reached a medium-sized scale, and they still compete with their peers on cost-effectiveness.
"It is difficult to crush others through technology because there is no high threshold." Yang Hong said self-deprecatingly, "Probably the most technologically advanced electronic product is lighting. We also use IC chips, which only need to be powered on and lit. The lowest-end IC is for us."
Wen Qidong, executive vice president and chief researcher of Guangya Lighting Research Institute, also pointed out this problem: "Zhongshan's lighting industry chain is very complete. It is not only a manufacturing center but also a trade center, with scale advantages. However, although the scale is large, the companies are very small, with poor risk resistance and few core competitiveness."
Transformation is just in time: Try cross-border e-commerce, the government calls for industrial upgrading
After graduating from studying in the United States, Yang Chang worked in Shenzhen for a year with the purpose of "stealing skills". He started from the grassroots operation of a cross-border e-commerce company, and felt the operation methods of e-commerce platforms and emerging channels such as TikTok. With some ideas, he decided to return to his own factory to do cross-border e-commerce.
Almost all of the company's orders come from overseas, and they are large B2B orders. In the past, exhibitions were the main channel for customer acquisition. Customers who came to consult were accurate customers with needs. After the exhibitions were established, the factory inspection and order placement were carried out. During the three years of the epidemic, exhibitions were basically suspended. The company relied on old customers to maintain the order volume. Some workers were dismissed due to reduced production capacity.
In the early years, Yang Hong tried e-commerce, and his conclusion was that "all the money was wasted." This is related to the to B (enterprise-oriented) business model. It is difficult to sell such products at the terminal. It requires operators to be proficient in foreign languages, familiar with product parameters, and need a long time to "chat orders", which has a relatively high threshold. At the same time, the traffic price of mainstream online foreign trade platforms is high and the competition is fierce. The main orders are small batches, which do not meet the company's positioning.
The younger Yang Chang believes that this is a good time to do cross-border business. He believes that B2B is different from to C (consumer-oriented) retail. The model of independent station combined with social media promotion is the most suitable operation model, that is, to establish the company's own product official website as a platform for receiving traffic, and then use social media to guide traffic to the official website, and finally chat privately to make orders. In short, this is to build a factory brand through online channels.
In addition, Yang Chang also hopes to conduct operational training for factory brands to go overseas in the local area, cultivate a local cross-border e-commerce atmosphere, and empower other companies to go overseas.
However, due to the particularity of the product, whether lighting companies can develop in online channels is still a question mark. In Wen Qidong's view, online transformation is indeed a trend, "technical means are constantly maturing, and this form is accepted by customers. But to a certain extent, it will still encounter bottlenecks." He believes that large B-end transactions are difficult to achieve through the Internet, and "standard products are suitable for online." The industry returns to its essence and still relies on face-to-face communication.
At present, the domestic exhibition industry has returned to normal, and lighting companies have started business trips. The Guangzhou Canton Fair, Ningbo International Lighting Exhibition, etc., have already arranged their itineraries for the second half of the year.
It's just that "popularity does not mean prosperity." Wen Qidong said that overall, the lighting industry in Zhongshan can be roughly divided into the following three years of the epidemic: in 2020, it was suppressed first and then rose, with orders but difficult to deliver; in 2021, affected by the monetary easing policies of major economies, demand was strong, and "month after month"; in 2022, the epidemic, the Russian-Ukrainian war and other factors suppressed demand, and "there was no peak season". Wen Qidong believes that overseas demand will remain sluggish in 2023, and the downward cycle trend will continue for some time.
An article in the Journal of Illuminating Engineering in February this year pointed out that the high penetration rate and long service life of LED lighting products have limited the scale of the lighting industry and are close to the ceiling.
According to the data, the output value of the LED industry in Zhongshan has been on a downward trend in the past five years. At the same time, despite the big brands in the industry that started in Zhongshan, such as Opple Lighting, MLS, and Huayi Lighting, more than 80% of local LED downstream companies are still private small and medium-sized enterprises with registered capital of less than 2 million yuan, lacking the leading role.
Note: From January to June 2022, the sales volume of LED lighting products decreased by 9.87% year-on-year.
At present, the LED industry in Zhongshan is concentrated on downstream applications, and most of them are still in the traditional lighting field. Looking to the future, Zhongshan enterprises with a complete and strong downstream industrial foundation need to find new industrial application directions, including smart lighting, agricultural lighting, and photomedicine. Wen Qidong also pointed out that for more subdivided lighting companies, industry trends include overall solutions for the home furnishing industry, healthy light sources, energy saving and low carbon, and intelligence.
For small and medium-sized enterprises to upgrade, technology is the first factor. In recent years, Zhongshan has proposed a number of policies to encourage the technological upgrading of the lighting industry. The local "14th Five-Year Plan" points out that it is necessary to focus on common links such as new generation light sources, power drive, product design and intelligent manufacturing, and to create an important gathering area for the smart lighting industry in the Bay Area. In 2022, 64 companies in Zhongshan were selected into the "specialized, refined and new" enterprise cultivation pool, and these companies can obtain official resource support.
"Zhongshan is indeed a benchmark region. It is not only a manufacturing center, but also a hub of the supply chain and a trade center." Wen Qidong said. As offline exchanges resume, various expositions and exhibitions are on the way in the ancient town of Lighting Capital. With the government's large-scale investment in transformation and upgrading, Zhongshan's lighting industry is expected to continue to illuminate the country and the world.
(At the request of the interviewees, Yang Hong and Yang Chang are pseudonyms in this article.)
